The purpose of this Information Release is to explain the
application of Ohio sales and use tax to “bundled
transactions” as those are defined in Ohio Revised Code
(“R.C.”) section 5739.012. That section provides:

(A) As used in this section:

(1) "Bundled transaction" means the retail sale of two or
more products, except real property and services to real
property, where the products are otherwise distinct and
identifiable products and are sold for one non-itemized
price. "Bundled transaction" does not include the sale of any
products in which the sales price varies, or is negotiable,
based on the selection by the consumer of the products
included in the transaction.

As used in division (A)(1) of this section:

(a) "Distinct and identifiable products" does not include any
of the following:

(i) Packaging, including containers, boxes, sacks, bags, and
bottles, and packaging materials, including wrapping, labels,
tags, and instruction guides that accompany the retail sale
of the products and are incidental or immaterial to the
retail sale thereof;

(ii) A product provided free of charge with the required
purchase of another product. A product is provided free of
charge if the sales price of the product purchased does not
vary depending on the inclusion of the product provided free
of charge.

(iii) Items included in the definition of "price" under
division (H) of section 5739.01 of the Revised Code.

(b) "One non-itemized price" does not include a price that is
separately identified by product on binding sales or other
supporting sales-related documents made available to the
consumer in paper or electronic form, including, but not
limited to, an invoice, bill of sale, receipt, contract,
service agreement, lease agreement, periodic notice of rates
and services, rate card, or price list.

(2) "De minimis" means the vendor's or seller's purchase
price or sales price of taxable products is ten per cent or
less of the total purchase price or sales price of bundled
products. Vendors and sellers shall use either the purchase
price or the sales price of the products to determine if the
taxable products are de minimis, and shall use the full term
of a service contract to determine if the taxable products
are de minimis. Vendors and sellers shall not use a
combination of the purchase price and sales price of the
products to determine if the taxable products are de minimis.

(3) "Over-the-counter drug" means a drug that contains a
label that identifies the product as a drug as required by 21
C.F.R. 201.66, and the label includes either a "Drug Facts"
panel or a statement of the active ingredients with a list of
those ingredients contained in the drug.

(B) A transaction that otherwise meets the definition of a
bundled transaction is not a bundled transaction if it is any
of the following:

(1) A retail sale of tangible personal property and a service
where the tangible personal property is essential to the use
of the service, and is provided exclusively in connection
with the service, and the true object of the transaction is
the service;

(2) A retail sale of services where one service is provided
that is essential to the use or receipt of a second service,
the first service is provided exclusively in connection with
the second service, and the true object of the transaction is
the second service;

(3) A transaction that includes taxable products and
nontaxable products, and the purchase price or sales price of
the taxable products is de minimis;

(4) A retail sale of exempt tangible personal property and
taxable tangible personal property where the transaction
includes food and food ingredients, drugs, durable medical
equipment, mobility enhancing equipment, over-the-counter
drugs, prosthetic devices, or medical supplies, and the
vendor's or seller's purchase price or sales price of the
taxable tangible personal property is fifty per cent or less
of the total purchase price or sales price of the bundled
tangible personal property. Vendors and sellers may not use a
combination of the purchase price and sales price of the
tangible personal property when making the fifty per cent
determination for a transaction.

(C) In the case of a bundled transaction that includes
telecommunications service, ancillary service, internet
access, or audio or video programming service:

(1) If the price is attributable to products that are taxable
and products that are nontaxable, the portion of the price
attributable to the nontaxable products shall be subject to
tax unless the provider, by reasonable and verifiable
standards, can identify the portion from its books and
records that are kept in the regular course of business for
other purposes, including, but not limited to, non-tax
purposes.

(2) If the price is attributable to products that are subject
to tax at different tax rates, the total price shall be
treated as attributable to the products subject to tax at the
highest tax rate unless the provider can identify by
reasonable and verifiable standards the portion of the price
attributable to the products subject to tax at the lower rate
from its books and records that are kept in the regular
course of business for other purposes, including, but not
limited to, non-tax purposes.

(D) In all other cases of bundled transactions, the
taxability of the transaction shall be determined by the true
object of the consumer entering into the transaction.

For purposes of applying this provision, “products” shall
mean all types of products except real property and services
to real property. “Products” includes tangible personal
property, services, intangibles, digital goods and all other
types of transactions subject to Ohio sales and use
tax. “Services to real property” include, for purposes
of example only, such services as building framing, roofing,
plumbing, electrical, painting, and janitorial, pest control
and window cleaning.

A. Elements of the Definition of a Bundled
Transaction

1. Distinct and Identifiable Products.

As defined above, a bundled transaction is a retail sale of
two or more products that are distinct and identifiable.
Packaging that accompanies the retail sale of a product,
products provided free of charge and items included in the
definition of “price” in division (H)(1) of R.C. 5739.01 are
not distinct and identifiable products.

a. Packaging is not a separate and distinct product when such
packaging is the wrapping or packing that accompanies the
retail sale of a product(s) and such packaging is incidental
or immaterial to the retail sale of the product(s).

b. A product provided free of charge is not a separate and
distinct product. A product shall be considered to be
provided free of charge in a retail sale if, in order to
obtain the product, the purchaser is required to make a
purchase of one or more other products and the price of the
purchased products does not change based on the seller
providing a product free of charge. Such products provided
free of charge with the necessary purchase of another product
(e.g. a free car wash with the purchase of gas or free
dinnerware with the purchase of groceries) shall be
considered promotional products.

c. A retail sale is not considered to be for two or more
distinct and identifiable products if the items are included
in the definition of “price” in R.C. 5739.01(H). For example,
a delivery charge, whether separately itemized or not, is
included in the definition of “price” in R.C.
5739.01(H)(1)(a)(iv). Therefore, the retail sale of a
product and the delivery of that product for a single price
shall not be considered a bundled transaction because the
delivery charges are included in the sales price of the
product under the statutory definition of “price.”

2. One Non-itemized Price.

If a retail sale of two or more products is not made for one
non-itemized price, then the retail sale is not a bundled
transaction. A transaction shall not be considered to be a
bundled transaction if, by negotiation or otherwise, the
sales price varies with the purchaser’s selection of the
distinct and identifiable products being sold. A retail sale
shall not be considered made for one non-itemized price if
the purchaser has the option of declining to purchase any of
the products being sold and, as a result of the purchaser’s
selection of products, the sales price varies or a different
price is negotiated.

a. A retail sale shall not be considered a bundled
transaction if the price is separately identified by product
on binding sales documents or other supporting sales-related
documentation made available to the purchaser because the
sale is not being made for one non-itemized price. The
sales-related documents made available to a purchaser in
paper or electronic form shall provide enough information for
the purchaser to determine the price(s) of taxable and exempt
products.

b. A transaction shall not be considered a bundled
transaction if a seller bills or invoices one price for the
sale of distinct and separate products but the price invoiced
is equal to the total of the individually priced or itemized
products contained in supporting sales-related documentation,
such as a catalog, price list, or service agreement.

c. If the seller bills or invoices one price for a
transaction that includes a bundle of products and also
includes one or more additional products that are
individually priced or itemized in a catalog or price list,
the additional products individually priced or itemized shall
not be considered to be a part of the bundled products sold
for one non-itemized price.

d. If a transaction does not qualify as a bundled transaction
because of the provisions of paragraphs 2.a. - c., above, the
transaction shall not be considered a bundled transaction as
a result of the seller offering a subsequent discount of the
total sales price without itemizing the amount of the
discount for each product. In such a situation, if there is
no sales-related documentation showing the allocation of the
discount, the discount shall be considered to be allocated
pro rata among the otherwise separately itemized products.

B. Records Required to be Maintained by the
Seller.

In order to show whether a retail sale was for one or more
distinct and identifiable products and whether the products
were sold for one non-itemized price, a seller shall maintain
copies of invoices, service agreements, contracts, catalogs,
price lists, rate cards and other sales-related documents
given to, or made available to, the purchaser. The Tax
Commissioner shall not be restricted in assessing tax because
the seller or purchaser failed to provide documentary proof
that the price varied based on the purchaser’s selections of
products.

C. Exclusions of Transactions that Otherwise Would
Qualify as Bundled Transactions.

Division (B) of R.C. 5739.012 contains exclusions for
transactions that would otherwise qualify as bundled
transactions. For transactions that include tangible personal
property and a service, or multiple services, sellers may
utilize divisions (B)(1) and (B)(2) of the definition or
division (B)(3) of the definition to determine if the
transaction qualifies as a bundled transaction. Division
(B)(1) does not apply to transactions that include only
tangible personal property. Division (B)(2) may be applied to
transactions that include all types of products to determine
whether the transaction qualifies as a bundled transaction.
Division (B)(4) does not apply to transactions that include
products that are not tangible personal property.

D. True Object, divisions (B)(1) and (B(2).

“True object,” as the term is used in divisions (B)(1) and
(B)(2) of R.C. 5739.012, means the main product or item in
the transaction. Division (B)(1) applies to transactions that
involve both tangible personal property and a service, and
the true object of the transaction is the service.
Division (B)(2) applies only to transactions that include two
or more services and no tangible personal property. If,
as a result of applying these provisions, a transaction is
not a bundled transaction, then the transaction shall be
considered a retail sale of the service that is the true
object of the transaction.

a. The true object test found in divisions (B)(1) and (B)(2)
of R.C. 5739.012 shall be applied on a case-by-case basis to
the particular facts involved in each situation. Some of the
factors that might be considered are the business in which
the seller is engaged and the purchaser’s object in engaging
in the transaction.

b. In transactions where the true object is taxable tangible
personal property or a taxable service, the transaction shall
be taxable in its entirety. Transactions where the true
object is non-taxable tangible personal property or a
non-taxable service, the entire transaction will be
non-taxable.

E. De minimis Test, division (B)(3)

To measure or quantify whether the taxable portion of a
transaction is de minimis, within the meaning of
Division (B)(3) of R.C. 5739.012, a vendor or seller may use
the sales price or the purchase price of each product in the
transaction. A seller shall not use the sales price for some
products in the transaction and the purchase price for other
products in the transaction to measure or quantify whether
the taxable product(s) in the transaction are de
minimis.

a. If services have been sold under a service contract, the
full contract price for the services shall be used to
determine whether products in the transaction are de
minimis regardless of the time period covered by the
service contract. For the purpose of determining whether
services in the transaction are de minimis, the
price of the services shall not be prorated based on the term
of the service contract.

b. When the taxable products in a transaction are determined
to be de minimis, the transaction is not a bundled
transaction.

c. In any non-itemized transaction where the taxable elements
of the transaction are determined to be de minimis,
the entire transaction shall be deemed to be non-taxable.

F. Primary Test, Division (B)(4).

In order to measure or quantify whether the taxable products
in the transaction are the primary products (more than 50% of
the total sales price or purchase price) under division
(B)(4) of R.C. 5739.012, a vendor or seller may use the sales
price or the purchase price of each product in the
transaction. A vendor or seller shall not use the sales price
for some of the products in the transaction and the purchase
price for other products in the transaction to measure or
quantify whether the taxable product(s) in the transaction
are the primary products.

a. Division (B)(4) may only be applied to transactions that
contain multiple products that are all tangible personal
property and one or more of the products are: food, soft
drinks, candy or dietary supplements; drugs including
over-the-counter and grooming and hygiene products; durable
medical equipment; mobility enhancing equipment; prosthetic
devices; or medical supplies.

b. When the taxable products in the transaction are not the
primary products (more than 50%) within the meaning of
division (B)(4), then the transaction is not a “bundled
transaction.” In such a case, the transaction shall be
non-taxable in its entirety.

Division (C) of R.C. 5739.012 provides for the application of
tax to any bundled transaction in which at least one product
is a telecommunication service, ancillary service, internet
access, or audio or video programming service.

1. When applying the provisions of division (C), sales or use
tax will be imposed on the total non-itemized price of a
bundled transaction where the vendor or seller has failed to
maintain books and records identifying through reasonable and
verifiable standards that portion of the price attributable
to the distinct products.

2. When determining the taxable portion of the non-itemized
price of a bundled transaction that is subject to tax under
the provisions of division (C), only books and records
maintained by the vendor or seller in the regular course of
business shall be considered. Books and records shall be
considered to be maintained primarily for tax purposes, and
not in the regular course of business, when such books and
records identify taxable and nontaxable portions of the
price, but the seller maintains other books and records that
identify different prices attributable to the distinct
products included in the same bundled transaction. Generally,
books and records kept in the regular course of business and
that are acceptable for use in subjecting the taxable portion
of a bundled transaction’s non-itemized price to taxation
under division (C) include financial statements, general
ledgers, invoicing and billing systems and reports, and
reports for regulatory tariffs and other regulatory matters;
provided, however, that the books and records named herein
shall not be considered all inclusive.

a. “Computer software maintenance contract” means a contract
that obligates a vendor or seller of computer software to
provide a customer with future updates or upgrades to
computer software, support services with respect to computer
software or both, and

b. ) “Optional computer software maintenance contract” means
a computer software maintenance contract that a customer is
not obligated to purchase as a condition to the retail sale
of computer software.

2. In any case where an optional computer software
maintenance contract for prewritten computer software is sold
to an Ohio consumer by a vendor or seller, the following
treatment shall apply:

a. If the optional computer software maintenance
contract only obligates the vendor or seller to provide
upgrades and updates, the contract will be deemed to be a
sale of prewritten computer software, which is defined to be
tangible personal property by division (YY) of R.C.
5739.01. Such a sale will be considered taxable
unless the consumer has a claim of exemption.

b. If the optional computer software maintenance contract
only obligates the vendor to seller to provide support
services, and no upgrades or updates, the transaction will be
considered to be the sale of a non-taxable personal or
professional service.

c. If the optional computer software maintenance contract
includes both taxable and exempt elements that are not
itemized separately on the invoice or similar billing
document, the contract shall be characterized as a sale of
prewritten computer software, which is defined to be tangible
personal property by division (YY) of R.C.
5739.01. Such a sale will be considered taxable
unless the consumer has a claim of exemption.

If you have any questions regarding this information release,
please contact our Taxpayer Service Center at 1-888-405-4039,
or e-mail us through our web site: tax.ohio.gov.

OHIORELAY SERVICES FOR
THE HEARING OR SPEECH IMPAIRED
Phone: 1-800-750-0750